This Article is From Feb 02, 2012

2G verdicts: 122 licenses cancelled; Chidambaram verdict with trial court

New Delhi: The Supreme Court this morning cancelled 122 telecom licenses issued by A Raja in 2008, a decision that will trigger powerful changes in the telecom sector, and eventually in how much India pays for cell-phone services. The court said using a first-come-first-serve policy to allocate national resources like airwaves is "fundamentally flawed", dangerous, and designed to benefit any one "with access to power corridors." The licenses have to be reallocated in four months via an auction based on market prices. (Read judgement here)

In a verdict on another crucial aspect of the telecom scam, the Supreme Court refused to order the CBI to investigate the actions of P Chidambaram who was Finance Minister when Mr Raja allegedly fathered India's biggest swindle. That decision, Justice AK Ganguly and GS Singhvi said, must be taken in two weeks by a trial court that's headed by Judge OP Saini, who is handling the telecom scam. (Supreme Court's telecom verdicts: 10 big facts)

It's a tough week for Mr Chidambaram - on Saturday, Judge Saini is expected to rule on whether he should be made a co-accused in the swindle for allowing Mr Raja to gift mobile network licenses and scarce second-generation or 2G spectrum at prices that were staggeringly low.

The Supreme Court has also said in its verdict that Mr Raja deliberately kept Mr Chidambaram out of the loop on his decisions - a stand that will help prop up Mr Chidambaram during a period of incessant attack. The judges say Mr Raja knew, for example, that the Finance Secretary at the time had objected to fixing prices for licenses at the rates used in 2001, and therefore he did not seek the opinions of the Finance Ministry. "I repeat that the Prime Minister and then Finance Minister P Chidambaram are in no way responsible" , said Telecom Minister Kapil Sibal, at a press conference this afternoon. "The Supreme Court has clearly said that the then minister (Raja) did not heed to the good advice of both Prime Minister Manmohan Singh and the Finance Ministry," he added.

Mr Sibal says that the court's rejection of the first come first serve policy hurdles the BJP into the hotspot because the NDA introduced this rule, and the UPA merely went along with it."Was this a religious principle that the UPA could not change it if the policy was problematic?" asked Arun Shourie who served as the NDA's telecom minister. (This Govt is shameless, says BJP)

The charges against Mr Chidambaram, being heard in the trial court, have been made by Janata Party President Subramanian Swamy. Along with lawyer activist Prashant Bhusan, his petitions elicited today's verdicts. The judges praised both men, saying, "But for the vigilance of some enlightened citizens who held important constitutional and other positions and discharged their duties in larger public interest and NGOs, who have been constantly fighting for clean governance and accountability of the constitutional institutions, unsuspecting citizens and the nation would never have known how the scarce natural resource (airwaves) spared by the army has been grabbed by those who enjoy money power and who have been able to manipulate the system."

The Supreme Court delivered a third verdict too - it refused  to make the CBI accountable  to a Special Investigating Team (SIT), as requested by Mr Bhushan, who said the agency was not handling the telecom case impartially. Mr Bhushan, like the opposition, has alleged that the government is influencing the CBI to protect Mr Chidambaram.

The Supreme Court today said that the new 2G licenses will have to be allotted via an auction of spectrum; it has given the telecom regulator TRAI four months to frame the guidelines for this process. Analysts say that the auction will force the exit of smaller, newer and less-serious players from the telecom field. The original big boys like Vodafone and Airtel will benefit, they say. Experts also point out that the cancelled licenses apply to just 5% of the total customer base, and that TRAI will use the next few months to help subscribers of affected companies to switch to other operators. (How the verdicts impact stakeholders)
Sources say that for Mr Chidambaram, the real challenge lies in defending why two firms who got licenses were allowed to tie up almost immediately with foreign partners, earning huge profits that were not shared by the government. Unitech and Swan paid about Rs 1600 crore each; they attracted massive investment from Telenor and Etisalat respectively. Mr Chidambaram has said the dilution of equity was legally permissible. At the time, laws barred owners of licenses for three years from reducing their investment by selling their stake. But creating fresh equity by issuing new shares was allowed. Mr Raja says Mr Chidambaram sanctioned the deals. Mr Swamy says the dilution if equity amounted to a sale. 

The court uses strong language against the first-come-first-serve policy that was used till recently to distribute licenses, but says that because those awarded before 2008 were not challenged in court, they remain unaffected. Telecom ministers who preceded Mr Raja like Arun Shourie and Pramod Mahajan also followed a first-come-first-serve theory which has been described as fundamentally flawed by the Supreme Court. Whether those could be revoked is a question that legal experts are studying carefully.